Thank you to the witnesses for their presentation and appearing before the agriculture committee.

Supply management was mentioned, and we've been talking about supply management since the election, and even before. The government does have a role to play when it comes to controlling imports at the border. I know I've been pretty critical of the government, and I think you shed some light on some failings and these losses to industry and Canadian farmers.

I was wondering if maybe we could talk about diafiltered milk. This is an issue that has been ongoing for the last few years. Presumably, many of the products entering Canada under the guise of duty relief are incomplete products still in the process of production. What does this mean for diafiltered milk?

We didn't get down into all the details of the specifics of different types of products. In the case of diafiltered milk, for example, it's important first of all for the Canada Border Services Agency to know exactly what is coming across the border. When you have that product showing up at the border, they have to be able to determine what the protein content is in it. That would take certain activities. Just being able to understand whether what's coming across the border is or is not diafiltered milk is the first thing that the agency would have to do.

We didn't get down into the details of each and every different type of controlled product. What we were concerned about in terms of the controlled products was that they were either coming in at levels above the quota or there were opportunities to actually divert them into the Canadian market when they were supposed to be just processed and then exported.

I can't get down into any of the details on diafiltered milk per se, but I'm sure the issues there are at least similar to the issues we did raise.

The duties relief program administered by CBSA was not, I think, conceived for agriculture. A lot of these products are perishable. One thing that comes to mind is that we've had many discussions with Chicken Farmers of Canada, and spent fowl coming into Canada is a huge worry that has caused a lot of damage and losses, very negative financial impacts. There have been solutions proposed by the industry. A lot of work has been done at Trent University for DNA testing. With the duties relief program, they have up to four years to re-export chicken that has been imported.

In 2016, when CBSA revoked the licences of six suppliers, was that related to spent fowl?

As I understand it, it was related to marinated chicken, so it certainly was related to chicken products coming across the border. All of that issue around the spent fowl or the diafiltered milk goes back to the complexity of what the Canada Border Services Agency has to try to do when these products show up at the border.

As you say, they are perishable. Without detailed testing at the border, once something comes across the border, it's much more difficult for them to control it. I think all of those issues go back to the complexity of actually being able to enforce the rules that are on paper. We therefore end up with these types of problems, because they can't always enforce the rules.

I think it's a matter of going back into the first instance and looking at what customs duties are being applied on what goods; then there's the difficulty of enforcing that. To identify whether a product coming across the border is diafiltered milk or not would probably take testing at the border. How much of that do you do? Who does it? Testing food products is not something just anybody can do. You have to make sure they're properly handled. Could some of it be done after it comes across the border?

All of those are the types of things the Canada Border Services Agency needs to look at. What we've done in this audit is highlight particularly the difficulties they are having in trying to apply the program, as it exists on paper, to these types of perishable products.

Is there data collection? Is there a data collection mechanism in place, and do your recommendations touch on that?

You've done amazing work in shedding light on this issue. I'm just worried that it won't get better. We have recommendations; I'm hoping the government will act. They could pull up their socks and do the job and really stand up for supply management. I'm worried that if there's no data collection and no transparency after the fact, this is something that's going to go on and on.

I think the recommendation addresses that issue indirectly when we say that both CBSA and Global Affairs should work together to make sure the licences are respected. This would imply that there will be some sort of data collection and better import monitoring of what crosses the border.

I want to talk about the duty relief program. The agency completed six compliance audits. I want to know whether they shared that data and how and why they did the six compliance audits. The reason I ask is that they did six compliance audits and found them all to be not respecting the program. I'm wondering, then, if they share that data, whether they do this on a random basis, or did they have some intelligence to make them think that these importers were being non-compliant?

I think it is important to realize that they focused on supply-managed goods. There are other goods coming in under this program that were not causing a problem, but in terms of the supply-managed goods, all six of the verifications they did were in that case.

I'll ask Monsieur Domingue for more details on the information we looked at.

Okay, and that's how they complete their audits. Part of the reason I ask is that if they had done this randomly and all six were found to be non-compliant, obviously this would have been an even bigger issue than what we're talking about—not to minimize the problem; it is an issue.

I want to talk a bit about some of your recommendations concerning the management of the program. You talk about making the licences renewable. Perhaps you're saying that if an importer's compliance record is not good, then you would revoke the licence. Is that the idea?

I guess there would be two aspects. There would be revoking of the licence, but also, making a licence renewable means that there is an automatic point at which the licensing of that particular organization needs to be considered, in contrast with the case that somebody has a licence and then you have to revoke it. That can sometimes be a more difficult exercise than just looking at whether the licence should or should not be renewed.

Adding in the renewal of a licence just adds an additional discipline, perhaps, in the system, for the importer to make sure they're doing what they're supposed to be doing because they know that at some point in the future they're going to have to be able to show that they are, in order to keep their licence.

From an audit perspective, how do you think we can do a better job at tracking? Again under the duties relief program, the importers, let's say for milk, can't keep milk for four years, so they have to displace it fairly shortly or transform it into a product. How long do they have to do that? I want to make sure that Canadian milk gets used for Canadian products, but when they use U.S. milk, is it used for Canadian products or is it used for exports? How do you manage that?

I understand that this is particularly complex because you're trying to track perishable goods that, when you just look at them, don't look any different, one good from another, so it's particularly complex for them to be able to apply this. I think perhaps in terms of the duties relief program, what they would need to do is go back and look at the six verifications they did to see whether there were any steps that they followed in those six verifications that maybe they could build into part of normal process, or are there some steps that they could do earlier and more often to be able to identify these types of issues?

They were able, through their six verifications, to identify that the rules weren't being respected and therefore revoked the licences. Is there something that they could draw from that to build into their normal process so that they don't have to wait for a verification to identify the problem? That's what I would suggest they do.

I assume the agency wasn't doing a sufficient job at looking at the amounts of imports that would have been used to transform x, y, or z products, and then they would look at the exports. Is that sufficient auditing in terms of the agency looking at what's happening? If I'm importing 90 kilos of milk into the country, and I'm exporting 90 kilos of transformed goods, or I've used 90 kilos for that product to go back out, is that enough auditing, or should they look on a broader basis?

Again, with these types of things I think people will always try to do things that are close to the line. Just looking at the amount coming in and the amount going out may not be sufficient because there may be ways of altering those goods in the meantime so that what goes back out looks the same as what came in. There are those types of things that could happen.

I think that they need to look at the data that's available to them, and they need to try to use that to identify ways that people might be getting around this system. I think that they need to be a bit creative in trying to think about how they can use the data to identify signs that people are not respecting the system.

You talked about penalties. The penalty for the first offence, you said, is around $150 and $450 for the third offence. So if I'm speeding at over 50 kilometres an hour in my area, I get a bigger penalty than an importer would get.

Again, we just made a recommendation that they should review the penalties, so that's really for them. I guess what we did say was that the average penalty that they applied was $151, so they should just look at whether the penalties are at a level that are having an impact on behaviour.